Hello! need help only with multiple choice questions. Page 188 - Questions 1 - 25 MCQ. In your answer please list the letter that best answers the question AND give a brief explanation as to why. Explanations can include mathematics, fully labeled graphs, sentences.

AP Exam Practice Questions Multiple-Choice Questions 2. Which of the following will occur if an increase in 1. Which of the following will occur if the federal interest rates leads to a decrease in investment spending government reduces defense spending? a. Aggregate demand will increase. a. Aggregate demand will increase. b. Aggregate demand will decrease. b. Aggregate demand will decrease. c. There will be no change in aggregate demand or c. There will be no change in aggregate demand or supply. supply. d. Aggregate supply will increase. d. Aggregate supply will increase. e. Aggregate supply will decrease. e. Aggregate supply will decrease. 188 Macro . Unit 3 National Income and Price Determinationwhich of the following will occur in the short run as a result of an increase in the aggregate price level? 10. If potential output is equal to actual aggregate output, 1. Aggregate demand will increase. which of the following is true? b. Aggregate demand will decrease. a. The economy is experiencing inflation. There will be no change in aggregate demand or b. The economy is experiencing cyclical unemployment. supply. c. Nominal wages are sticky. d. Aggregate supply will increase. d. The economy is in long-run equilibrium. e. Aggregate supply will decrease. e. The aggregate price level is rising. Which of the following will occur if the price of steel 11. Which of the following is true about the long-run decreases as a result of the discovery of new deposits of aggregate supply curve? iron ore used to make steel ? a. It is horizontal. . Aggregate demand will increase. b. It is the result of nominal wages being fully flexible. b. Aggregate demand will decrease. c. It is the result of sticky prices. . There will be no change in aggregate demand or d. It is upward-sloping. supply. e. It intersects the horizontal axis at the actual level of d. Aggregate supply will increase. real GDP. e. Aggregate supply will decrease. 12. Short-run equilibrium aggregate output is the quantity 5. Sticky nominal wages in the short run cause the short- of aggregate output produced when run aggregate supply curve to a. the aggregate demand curve and the short-run a. shift to the right. d. slope downward. aggregate supply curve are identical. b. shift to the left. e. be vertical. b. the quantity of aggregate output supplied is equal to c. slope upward. the quantity demanded. 6. As a result of the real wealth effect, a higher aggregate c. the economy reaches its potential output. price level will reduce which of the following? d. the short-run aggregate supply curve is vertical. a. households' purchasing power e. all prices, including nominal wages, are fully flexible. b. interest rates 13. The collapse of wealth and of business and consumer c. investment spending confidence that caused the Great Depression is an example of which type of shock? d. nominal wages a. negative supply shock e. aggregate demand b. positive supply shock 7. The interest rate effect of a decrease in the aggregate c. negative demand shock price level will increase which of the following? d. positive demand shock a. the purchasing power of money holdings e. negative recessionary shock b. investment spending 14. Which of the following is an example of a positive c. interest rates demand shock? d. aggregate supply a. a large increase in defense spending e. aggregate demand b. the stock market crash of 1929 8. Which of the following types of shocks poses a policy c. the discovery of a large, previously unknown oil field dilemma due to the inability to use stabilization policy d. a reduction in the aggregate price level to address inflation and unemployment at the same e. an increase in nominal wages time? 15. A positive supply shock will lead to which of the following? a. negative supply shock a. stagflation b. positive supply shock b. an increase in the aggregate price level c. negative demand shock c. a recession d. positive demand shock d. a rightward shift of the short-run aggregate supply e. negative budget shock curve 9. A higher aggregate price level leads to higher profit per e. an increase in aggregate output along with inflation unit of output and increased output in the short run 16. Which of the following is an example of a negative because of which of the following? supply shock? a. the real wealth effect a. Production costs decrease. b. the interest rate effect b. Information technologies lead to productivity growth. c. sticky nominal wages c. The stock market collapses. d. productivity gains d. The government runs a budget deficit. e. stabilization policy e. World oil supplies are disrupted. Macro . Unit 3 Review 18925. Which of the following is an example of an automati 17. Which of the following is true when the economy is stabilizer? experiencing a recessionary gap? a. the Works Progress Administration established a. Potential output is below aggregate output. during the Great Depression b. Aggregate demand is below aggregate supply. b. lump-sum taxes c. There is high unemployment. c. a balanced budget requirement for the government d. The aggregate price level is rising. d. sales taxes e. The economy has self-corrected. e. economic stimulus checks from the government 18. When the economy is experiencing an inflationary gap, the output gap is Free-Response Questions a. positive. d. decreasing. b. negative. e. increasing. 1. Consider an economy operating at full employment. c. zero. a. Draw a correctly labeled aggregate supply-aggregate 19. Which of the following leads to self-correction when the demand graph for the economy. On your graph, economy is experiencing a recessionary gap? show each of the following: a. Nominal wages and prices rise. i. equilibrium price level, labeled PL, b. The short-run aggregate supply curve decreases. ii. equilibrium output level, labeled Y, c. The long-run aggregate supply curve decreases. iii. potential output, labeled Yp d. The short-run aggregate supply curve shifts to the right. b. Assume the government increases transfer payment e. Unemployment leads to an increase in aggregate to families with dependent children. demand. i. Show the effect of the increase in transfer 20. Which type of policy can be used to address a decrease payments on your graph. in aggregate output to below potential output? ii. Label the new short-run equilibrium price level a. expansionary d. recessionary PL2 and the new short-run equilibrium output b. contractionary e. inflationary level Y2. c. indiscretionary c. Refer to the new short-run equilibrium shown on 21. If the marginal propensity to consume is equal to 0.80, your graph in response to part b. the expenditure multiplier is i. The new short-run equilibrium illustrates what a. 0.80. d. -4.00. type of output gap? b. 1.25. e. 5.00. ii. What type of fiscal policy would be appropriate c. 4.00. for an economy facing a persistent gap of the type you identified in part i? (10 points) 22. If the marginal propensity to consume is 0.75, an initial increase in aggregate spending of $1,000 will lead to a 2. Assume the MPS for an economy is 0.1. total change in real GDP equal to a. What is the value of the expenditure multiplier? a. $750. d. $4,000. Show your work. b. $1,000. e. $7,500. b. What is the value of the tax multiplier? Show your work. c. $1,333. c. What is the maximum increase in real GDP as a result of an increase in government spending of 23. If the marginal propensity to consume is 0.9, every $10 $200 million? Show your work. billion change in taxes will cause a change in spending d. If government spending and taxes are both increased equal to by $200 million, what is the net effect on real GDP? a. $100 billion. Explain. (5 points) b. $90 billion. c. $10 billion. 3. The real GDP in Macroland is currently $100 million d. $9 billion. below potential output. e. $0.9 billion. a. What type of gap is Macroland experiencing? What type of policy would be used to close this gap? 24. Compared to an increase in taxes, an equal-sized b. If the MPC in Macroland is 0.8, what is the value of increase in government spending will have what effect the expenditure multiplier? Show your work. on real GDP? c. To return Macroland to long-run equilibrium, by a. a larger, negative effect how much should the government change taxes? b. a smaller, negative effect Show your work. c. a larger, positive effect d. Would the change in government spending needed d. a smaller, positive effect to close the gap be greater than, less than, or equal e. an equal, offsetting effect to the change in taxes? (5 points) 190 Macro . Unit 3